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ndonesia should “do more than it is currently doing” to prevent losses in the event of a disaster, the World Bank says, adding that a disaster insurance policy for the country would help reduce the economic costs of a major catastrophe.

Apurva Sanghi, the bank’s senior economist on global facilities for disaster reduction and recovery, said in Jakarta on Thursday that disaster insurance was “clearly a very relevant issue for Indonesia”, because post-disaster management was a lot more costly than disaster prevention.

“There are obviously day-to-day constraints and problems, including people’s perception of ‘what if something doesn’t happen’ and people might feel that they wasted their premium. But that’s a false perception,” Sanghi told reporters at the launch of “Natural Hazards, UnNatural Disasters: the Economics of Effective Prevention” at the Borobudur Hotel in Jakarta.

The catastrophic disasters that hit Japan this month have prompted Indonesia, which is prone to a variety of natural disasters, to establish an integrated disaster prevention system.

Sanghi said the time frame for implementing an integrated disaster prevention system would depend on the “political will” of the country. “[But,] I’m very hopeful that Indonesia will have disaster insurance as soon as possible.”

Finance Minister Agus Martowardojo said at the same event that his ministry’s Fiscal Policy Agency (BKF) and the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) had been studying schemes for disaster insurance since last year.

The insurance scheme would be submitted to the House of Representatives for approval once the assessment had been concluded, he said.

Separately, fiscal policy acting chief Bambang Brodjonegoro said the government had allocated a total of Rp 4 trillion (US$460 million) from this year’s state budget for the disaster management fund. “But that’s not enough,” he said. “If we used
Rp 1 trillion to buy insurance, for example, the benefits we could have might reach dozens of trillions.”

The disaster insurance funds would be disbursed to disaster-prone areas and there would be a maximum limit of allocated funds if a natural disaster occurred, he said.

“Just like health insurance, if you are sick the medical costs will be covered by the insurance firm depending on the contract,” Bambang said. Sanghi said Indonesia could take the Caribbean region as an example of implementing a disaster insurance scheme.

As a result of the insurance facility, they would need to wait for months for emergency aid to start rehabilitation work after a disaster, he said.

“That’s a very successful example from the developing part of the world for countries having purchased insurance,” he added.

The Caribbean Catastrophe Risk Insurance Facility (CCRIF) is backed by a fund of around US$20 million a year, with claims not based on actual losses or damage following natural disasters but instead on pre-defined indexes based on the intensity, period and location of a disaster.

Countries can buy coverage limited to specific events, areas, and for a specified amount of time by pooling their risks. CCRIF’s 15 member governments share administrative and operational costs and pay lower premiums, ranging from $200,000 to $4 million a year.